MUMBAI: After the surprise slump in the second quarter, when GDP growth fell to a seven-quarter low of 5.4 per cent, the economy has regained momentum. According to the Reserve Bank's in-house researchers and economists, the economy is recovering quickly, driven by strong festival demand and a sustained upswing in rural demand.
The central bank underlined its optimism in the economy’s strength in its monthly bulletin.
Following the unexpected slump in the September quarter, the RBI revised down its growth forecast to 6.6 per cent, down 60 bps from the October projection. It has also increased the forecast for average annual inflation for the current fiscal to 4.8 per cent from 4.5 per cent.
In an article on the 'State of the Economy' in the December bulletin, the analyst noted that the global economy continues to exhibit resilience with steady growth and moderating inflation.
"High-frequency indicators for the third quarter indicate that the economy is recovering from the slowdown in momentum seen in the second quarter, driven by strong festival activity and a sustained upswing in rural demand," they said in the article released Tuesday.
“Our growth trajectory is poised to lift in the second half, driven mainly by resilient domestic private consumption demand. Supported by record-level foodgrains production, rural demand, in particular, is gaining momentum,” said the article, authored by a team led by Deputy Governor Michael Debabrata Patra.
The prospects for agriculture and, thus, rural consumption are looking up with the brisk expansion of rabi sowing, said the article.
The RBI said the views expressed in the bulletin are those of the authors and do not represent the views of the central bank.
The paper attributed the Q2 growth deceleration to subdued industrial activity at 2.1 per cent versus 13.6 per cent in the corresponding quarter, noting the services sector has exhibited resilience, and so did agriculture, with agri, forestry, and fishing improving to 3.5 per cent in Q2 from 1.7 per cent a year ago. Also, there is an increase in kharif production, supported by above-normal Southwest monsoons.
Sustained government spending on infrastructure is expected to further stimulate economic activity and investment. Global headwinds, however, pose risks to the evolving outlook for growth and inflation.
Expectations around our resilient growth trajectory going forward are also coalescing with more sustainable underpinnings in view of positive climate action, with an increased policy focus on renewable energy, electric vehicles, green hydrogen, and steps towards institutionalising the carbon market.
These concerted efforts indicate a promising path toward achieving net-zero emissions, the paper concludes.
Sounding optimistic about inflation, the article noted that headline consumer price inflation moderated to 5.5 per cent in November on the back of easing food prices from 6.21 per cent in October.